Failure to process plan enrollment form

[Guest ncterp]

We have a recently terminated EE who completed an enrollment form for our 401k in 2000. She selected one fund and indicated she wanted to defer 6% of salary. HR completed on-line enrollment at the Principal website and Principal has a record of this. But the form was never processed by our Accounting dept. and no funds were ever deferred from her paychecks over the years. She would have been eligible for a 3% match immediately upon enrollment because she had been employed since 1998. I have consulted a benefits attorney and Principal (the TPA0 and I am still confused over what we should do to correct this error. Without knowing about the error, we have put processes in place in HR and Accounting over the past few years that should keep this from happening again. To correct its error, the company is willing to deposit 50% of EE's missed deferral amounts (even tho she never actually deferred anything), plus the match on what would have been her full deferral amount, plus any gain that the fund she selected would have earned over the years (hoping to calculate the gains/losses quarterly to reduce the effort involved). (Assuming deposit of 50% of the deferrals, the total amount involved is around $5000 because this was not a highly paid EE and she only worked part time.)

Yes, the EE should have noticed at some point in the past 6 years by looking at her paycheck stub that no deferrals were being made but oh well....

Do I need to file any formal paperwork with DOL or IRS in order to correct this error by depositing the amount suggested above? Or can I just make the deposit and document how I corrected the problem and go on?

Thanks,

carol